Hedgehog (Hh) signaling is an important regulator of cell fates in development and adult physiology. In the skeleton system, Hh signaling is required for the differentiation of mesenchymal progenitors into osteoblasts during endochondral bone formation. In addition, it is fundamentally important to understand how bone formation is tightly controlled spatially. However, how Hh signaling in mesenchymal progenitor cells is regulated and how bone formation is spatially controlled are still largely unknown. In the past year, we have investigated the underlying cellular and molecular mechanisms of heterotopic ossification (HO), a very disabling disease caused by extra-skeleton bone formation. We started by studying a genetic form of HO called progressive osseous heteroplasia (POH). POH is caused by loss of function in Gas protein, which transduces signaling from G protein coupled receptors. We have established animal models of POH and found with both in vivo and in vitro approaches that Gas is an important regulator of Hh signaling in multiple tissues including the adult mesenchymal progenitor cells. We found that ectopic activated Hh signaling is both necessary and sufficient for causing HO. Hh inhibitors previously developed to treat cancer can be repurposed to prevent HO. Furthermore, we investigated with combined genetic and biochemical approaches the function and mechanisms of Gas and Hh signaling in controlling osteoblast differentiation from mesenchymal progenitor cells in both embryos and adult animals.